Mexico Braces for Economic Blow; Immigration Adds to Complexity of the Issue

MEXICO CITY, Oct 10 (IPS) - The Mexican government has taken emergency financial measures to withstand the winds of crisis from the United States, which this country is heavily dependent on as shown by their daily bilateral trade volume of one billion dollars on average. However, the measures will not completely ward off the impact, say analysts.

The difficulties faced by Mexican migrant workers will also complicate the government's strategy. Remittances from Mexicans living in the United States, the country's second largest source of foreign exchange after oil exports, have already shrunk, and experts predict that they will continue to fall.

Some observers even forecast a massive return of migrants, which would put further pressure on an already stretched job market.

With the backing of the business community and most political sectors, including part of the left-wing opposition that has been harshly critical of the conservative administration of Felipe Calderón, the government has drawn on the country's nearly 90 billion dollars in foreign reserves to sell 8.9 billion dollars since Wednesday to prop up the peso, which has declined against the dollar by more than 10 percent in the last two weeks, the sharpest drop since the 1995 "tequila crisis."

The government also announced 4.4 billion dollars in emergency spending -- a strategy made possible thanks to savings programs, a stabilization fund created over a decade ago, and strict balanced-budget requirements. The plan is to build and repair infrastructure, from roads and schools to prisons, build a new oil refinery, and provide support for small and medium businesses.

The aim, said Calderón, is to "strengthen the motors of our economy," generate employment and put in place investments with an eye to future benefits.

Nevertheless, forecasts for Mexico's economic growth have been corrected downwards, from 3.5 percent at the beginning of the year to 2.0 percent or less, for 2008, and to 1.3 percent or lower for 2009.

The measures taken by Mexico, which are "the right ones, and are what it is possible to do in the current scenario," should curb the impact of the international crisis, "although effects are inevitable, particularly given the extreme level of dependence on the U.S. economy," Jorge Mattar, head of the subregional headquarters of the Economic Commission for Latin America and the Caribbean (ECLAC) in Mexico, told IPS.

The majority of Mexico's exports and imports are tied to the United States, and U.S. consumption and demand directly fuel a large part of the country's manufacturing sector and jobs.

Mexico's exports to the United States stand at over 272 billion dollars a year, with manufacturing (largely involving for-export assembly plants) accounting for 81 percent, oil and minerals for 16 percent, and agriculture for most of the rest.

As Calderón said in a nationally televised address Thursday evening, "unlike in the past, when a lack of dollars led us into terrible crises," today Mexico has international reserves, it is covering its debt servicing requirements, its public finances are sound, and the banking sector is free of troubles.

"All of this, which we have built with a huge effort, little by little, means that by contrast with the past, when there was no other option than to cut spending and call on Mexicans to make greater sacrifices, the government now has sufficient maneuvering room to confront the problem," he said.

However, there is no room for complacency, warned Mattar. So far the effects of the crisis have been felt in the financial system -- the currency and stock markets -- "but they will hit the real economy later," said the ECLAC official.

All Mexico can do now under the present circumstances is confront the crisis, said Mattar, who said the financial turbulence sweeping the world "will not be short-term in nature."

He also expressed concern about the additional impact on the Mexican economy from the decline in remittances sent home by the roughly seven million Mexican migrants living in the United States, many of whom are among those who are feeling the brunt of the crisis there.

In August, remittances were down 12.2 percent from the same month in the previous year -- the sharpest drop in a decade. And experts say that by the end of the year, they could be five percent lower than the total for 2007.

Agustín Escobar of the Center for Advanced Research and Studies in Social Anthropology (CIESAS) said that although most of the remittances do not go to the poorest households in Mexico, these families are much more heavily dependent on the money sent home by relatives abroad.

Eight percent of poor families in Mexico depend almost entirely on that cash flow to survive, and will find themselves in a critical position as a result of the drop in remittances, Escobar said.

Studies show that due to the crisis in the U.S., many Mexican immigrants have lost their jobs and/or homes, or have seen a sharp decline in their incomes, all of which has made it necessary for them to cut, or completely stop sending, money back home to their families.

The average annual income of Mexicans in the United States fell from nearly 34,700 dollars in 2006 to 33,000 dollars in 2007, according to a study released early this month by the U.S.-based Pew Hispanic Centre.

Meanwhile, Carlos Villanueva, president of the U.S.-based Asociación Mundial de Mexicanos en el Exterior (AMME - Worldwide Association of Mexicans Abroad), predicts a sudden, massive return of Mexicans from abroad, which would hurt the local job market here.

But others disagree. "I don't think they will return en masse; no matter how hard they have been hit now, migrants aren't going to give up what has cost them so much, and especially not if the outlook in Mexico isn't the best," Diego Lorente, head of Sin Fronteras (Without Borders), a non-governmental Mexican organization that works on behalf of migrants, told IPS.

"I see it as very unlikely that they will return in large numbers, or suddenly. If that were to happen, the possibility of an outbreak of social unrest in Mexico would be high," said Lorente.

In Mattar's view, it is too early to predict whether significant numbers of migrants will be coming back to Mexico, just as it is difficult to foresee how long the crisis will last or how deep it will cut.

What is clear is that remittances will keep shrinking, he said. But, he added, although this cash flow is important, "it only accounts for three percent of all consumption in Mexico."

A recent Inter-American Development Bank report says that "in countries such as Mexico, remittances are a key poverty reduction tool, as more than 57 percent of remittances are used to purchase daily necessities such as food, clothing and shelter."

Villanueva predicts that troubles lie ahead for the Mexican economy because -- he says -- as many as 600,000 migrants could return to this country before the end of the year, and more than a million over the next two years.

According to the National Population Council, the number of Mexicans in the U.S. grew 5.9 percent last year, from 2006, with nearly 700,000 Mexican migrants settling there in 2007.

The migration of workers to the United States is an escape valve for Mexico, which would have to create more than one million jobs a year, but only generated 756,000 in 2007 and will only generate 650,000 at the most this year, according to official estimates.

Mexico's official unemployment rate reached a 42-month high of 4.15 percent in July. (This figure does not take into account underemployment, which would include the millions of part-time or informal sector workers).

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